Pensions in Britain no longer represent a “gold standard” and private
retirement schemes will never be as generous as in the past, Lord Freud, a
Pensions Minister has warned.

Lord Freud said that the combination of tax changes, falling annuity rates, poor investment returns and increased life expectancy meant that the relatively generous pensions enjoyed by retirees today were a “one off”.

“UK pensions are no longer the gold standard that they were,” the minister admitted.

The British pension system used to be the envy of the world but levels of saving have plummeted in recent years and most companies have abandoned final-salary pension schemes.

Lord Freud made the admission amid growing concerns over the impact of the quantitative easing programme to shore up Britain’s economy on pension savings.

The Bank of England is pumping more than £300 billion into buying up government bonds which is pushing down the value of pension investments.

Retirement savings were already struggling from poor stock-market returns and sharp rises in life expectancy.

Speaking in the House of Lords, Lord Freud, a Department of Work and Pensions minister, said: “We have seen falling annuity rates, increased longevity and a fall in the rate of return on equities. My personal belief is that some of us in this generation had a free ride because of the discovery of equity returns in the 1950s, 1960s and 1970s. I suspect that those returns were a one-off. We also saw the abolition of payable tax credits. As a result, UK pensions are no longer the gold standard that they were.”

The remarks will put pressure on George Osborne, the Chancellor, to resist growing calls from the Liberal Democrats to restrict tax relief on pension contributions for higher earners.

Danny Alexander, the Liberal Democrat Chief Secretary to the Treasury, suggested in an interview with The Daily Telegraph that it was unfair for higher-rate taxpayers to receive generous tax perks on their pension contributions. However, the Conservatives are thought to be opposed to the plans.

Mr Osborne was also in favour of reversing a tax raid launched by Gordon Brown on pension schemes – which is blamed for accelerating the decline of final-salary pensions in the private sector. The Chancellor had hoped to do this after the next election in 2015, if the Conservatives retain power.

However, the ongoing financial crisis means that the Government may be unable to afford to reverse the tax rise.

Last week, the Prime Minister warned of a growing risk of “apartheid” between private and public sector pensions. The problems identified by Lord Freud largely only apply to private sector workers – as public sector workers still receive guaranteed payouts after they retire, with the costs heavily subsidised by the taxpayer.

Trade unions are threatening a new wave of industrial action over Government moves to reduce the generosity of public-sector pensions.

The Telegraph Investor

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